Whenever anyone talks about the stock market's scams "Harshad Mehta" is usually the first name that comes to mind. Harshad Mehta was known as the "Big Bull" of the stock market because he used to hike up the price of the shares by manipulating the share market.
Recently the life story of Harshad Mehta got picturized through a web series named 'Scam 1992' on an OTT (Over The Top) platform SONY LIV, which gained nationwide popularity and brought the infamous scam to the public eyes once again.
Before Harshad Mehta, in the late 1980s, 'Manu Manek' was a bigger personality in the stock market, which used to manipulate the market by his bearish moves.
Manu Manek indulged in the short-selling of shares to earn profits. He was so powerful that in the late 1980s, the BSE (Bombay Stock Exchange) was shut down for a few days.
After 'Scam 1992', a lot of viewers were also intrigued to know about the Cobra, Manu Manek and how he dictated the market and formed the bear cartel group? Or what does 'bull-bear' and short-sellings mean?
So, let's take you on his journey by collectively looking at all of these things.
Who was Manu Manek?
A leading operator in the late 1970-80s, Manu Manek dictated the market until Harshad Mehta came to the forefront.
Manu Manek, in the words of Kisan Ratilal Choksey, the founder of K R Choksey Shares and Securities, was a legendary personality and powerful operator who dictated the market. Without his nod, it was impossible to become a director of a company. Apparently, on the day of the election, he would send the names or list of directors to companies - and only those people ever got elected".
This statement definitely gives an idea of how powerful Manu Manek was!
Manu Manek was born between 1948-1952 (estimated) in Kolkata, India. After finishing his graduation, he worked as a stockbroker in the stock market. After spending years as a stockbroker, he gained knowledge of the stock market and started investing money by analyzing the market and earned huge profits.
Years later, he became a big, famous personality of the Indian stock market/Dalal Street.
It was said that God had given him the natural gift to read the market. Back in the 1980s, Manu had a great reputation and influence on the market, and nothing happened in the market without his permission or knowledge.
Unofficially, he was known as the king of the BSE (Bombay Stock Exchange), companies, and the whole network of the stockbrokers used to operate on his nod.
Manu Manek has either been closely associated with or guided other investors who are now the "Bulls and Bears" of the current market. These people included the Big Bull Rakesh Jhunjhunwala and the founder of DMart, Radha Kishan Damani and other investors (Shankar Sharma, Dinesh Dalmia, Ajay Kayan, Raamdeo Agrawal, and Nimesh Kampani/ Real Ajay Kedia).
According to Economic Times, "Radha Kishan Damani, then in his late 20s, would stand at the far end from the trading ring and watch Manu Manek in action. It is evident that young Damani learned a lot by watching rafty Manek spoiling the Bull's Party."
Manu Manek used to manipulate the stock market by his bearish and short-selling strategy. But what are these strategies? And how did he become the Cobra?
Let's take a look into it.
How did Manu Manek manipulate the market and known as the Cobra?
In the late 1980s, SEBI's (Stock Exchange Board of India) rules and regulations were not very strict. Manu Manek took advantage of this and manipulated the market by his bearish and short-selling moves.
Before going deeper first, let's understand the "Short-Sellings, Bullish and Bear Strategy".
Commonly, investors purchase the company's shares when shares prices are lower and wait for the company to perform well so that the company's shares price can go up. When the price of shares reaches their peak, investors sell their shares, and that is how they earn profits in the market and give rise to capital gains.
This investment strategy of making profits by market growth and improvement of the company's performance is called the "Bullish Strategy". This strategy is based on the prediction/analysis that the stock market will improve and the price of the company's shares will also increase. This position is called a long position in the stock market.
This strategy is based on the despondent outlook of the market. Investors look for companies that are already performing well in the market and the prices of which are about to fall.
This strategy, which is based on the analysis that the company's share prices will fall in the future, is called "Bearish Strategy". Investors hold positions when the price of shares is high and wait for share prices to fall, and that's how investors earn profits. This position is called "Short Position".
There are mainly two options for short-selling.
If an investor wishes to do short-selling of some shares that they are familiar with, they can sell their shares at a higher price and wait for the prices to drop, then buy back the shares again at a lower price, and the difference in price will be the profit.
Another option is if an investor wishes to short-sell shares that he does not own, he can do this by lending shares from someone who owns shares. This can further be done by two methods:
First, the investor can use the derivative option in which he can buy a put option on that stock (This derivative option was not available in the early 1980s). Alternatively, if the investor has a good relationship with the stockbroker, the investor can ask the stockbroker to lend him shares.
Manu Manek used the strategy of lending shares to make huge profits. It is through this method that he got fame and started being known as the "Cobra of the Dalal Street".
Back in the 1980s, it was difficult to get low-cost credit. Investors used to take credit from Manu Manek with a 20-30% interest rate to purchase shares. Manu kept all the details of where these investors were investing.
Investors used to take high credit to hold a long position to earn higher profits. As the demand for shares increases, the price of shares increases accordingly.
Manu Manek waited for the right time to strike. Once the share prices went up, the Cobra entered the market and kept shorting the shares price, and the selling pressure increased on the investors.
By doing this, the supply of shares used to increase, and prices fell accordingly. With this, the bullish investors lost their money, and Bear investors earned a lot of profits.
In the words of Sevantilal Shah of Stewart and Company, "He (Manu Manek) had a natural gift of being able to detect any hollowness in the market".
Later, Manu Manek formed the bear cartel (a group of people that manipulate the stock market to earn profits are referred to as a cartel) in which the 3R's (Rakesh Jhunjhunwala, Radhakishan Damani, and Raju Chartist) were his famous associates. This bear cartel group followed the same ideology as Manu Manek.
The Bear cartel group was dictating the stock market until the Big Bull, Harshad Mehta made his entrance.
Harshad Mehta vs. The Bear Cartel
Harshad Mehta and Manu Manek faced each other several times in the war of the share market. One famous face-off was when the Big Bull and the Bear Cartel had conflict over a company's shares which was called Indrol.
Manu Manek had a short position and Harshad Mehta on the other side was holding a long position. Mehta kept increasing the share's price by increasing the demand and forced the Bear cartel to cover up.
The Bear cartel attacked Harshad Mehta's reputation by spreading rumours that he had lost Rs. 1 Crore in the stock market. In a counter-attack, Harshad Mehta paid all the dues in advance to the investors to ensure the safety of their investment. And thus, Mehta won this battle against the Bear Cartel.
Manu Manek vs. Dhirubhai Ambani
Only a few people know that Manu Manek and Dhirubhai Ambani had a conflict in the late 1980s over Reliance shares.
In the late 1980s, Reliance industry was performing well, and Dhirubhai Ambani used to treat his investors like his family members.
In Choksey's words, "Dhirubhai had an overwhelming feeling that if investors were not happy, he could not get more money, which would limit his growth. So he treated his investors as his family members."
The Reliance Industry was performing well until the Cobra set his eyes on it.
Manu Manek started short-selling Reliance's shares. However, he underestimated Dhirubhai Ambani who did not surrender and asked his lieutenant Anand Jain to lead the defense.
In a counter-attack, Anand Jain and his associates started buying the shares of Reliance from Manu Manek. The more Manek sold, the more Anand Jain bought, and the price of Reliance shares started growing again.
What was worse was that the Bear Cartel did not own the shares, they just lent the shares from the market and intended to buy the shares when the price fell down. But the share prices of Reliance did not fall down, and Bear Cartel was under pressure to deliver the actual shares.
The Bears were not left with any choice but to buy back the shares at a higher price or wait for a little longer and let the price rise even higher.
This intense standoff between Bear Cartel and Dhirubhai Ambani caused the BSE to close down for a few days. After all of this, the Bear Cartel surrendered and paid all the dues to Anand Jain and Dhirubhai Ambani.
Manu Manek or the "Cobra" used his short-selling technique to make huge profits from the declined market. He was skilled and fearless and used to dictate the market for many years until the Big Bull entered.
Many associates of Manu Manek, including Rakesh Jhunjhunwala and Radhakishan Damani, have become very successful investors who still control the stock market.
Investing in the stock market is like gambling. If you know the rules and know how to play, then it becomes easier for you to make analysis and predictions. And if you do not have the required skills, knowledge, or insights, this game might not be the right gamble for you.